When a company closes down, whether due to insolvency, financial hardship or a business decision to cease trading, employees often face uncertainty about their legal rights and entitlements. Understanding your rights as an employee in these circumstances is essential to ensuring you receive what you are legally owed. At Stephensons, our employment law specialists are experienced in advising individuals facing redundancy and corporate closure scenarios, helping you navigate this difficult time effectively.
The different types of company closure
Not all company closures occur for the same reason, and the nature of the closure can have a significant impact on your employment rights. The most common situations include:
- Voluntary closure – where a business owner chooses to close the company
- Insolvency – when a company cannot pay its debts and enters administration, liquidation or receivership
- Compulsory liquidation – when creditors petition the court to wind up the company
The legal framework surrounding employee rights may differ depending on the type of closure and whether an insolvency practitioner is appointed to manage the process. It is important for employees to establish early on what kind of closure is occurring.
Your legal rights in the event of closure
Employees enjoy certain protections under UK employment law, even in the case of business closure. Your rights will depend on your length of service, the contract of employment, and the situation in which the closure occurs. Key rights include:
- The right to consultation if redundancies are planned
- The right to notice or payment in lieu of notice
- The right to redundancy pay if you’ve worked for the company for two years or longer
- The right to claim unpaid wages, holiday pay, or other contractual entitlements
It is important to note that directors and officers of the company must still comply with employment law even as the company winds down. Failure to do so may result in legal claims being brought against them or the company’s appointed insolvency practitioners.
Redundancy during company closure
Redundancy is one of the most common outcomes for staff when a business closes. Employers are legally required to follow a fair redundancy procedure, which includes:
- Providing advance notice of the redundancy
- Consulting with affected employees or their representatives
- Offering suitable alternative roles where available
If the employer fails to follow a proper procedure, you may have grounds to bring a claim for unfair dismissal. This is particularly relevant where less than the required notice period is given or where consultation was not carried out appropriately.
Notice periods and pay
All employees are entitled to a minimum notice period upon the termination of their employment, even in the event of company closure. The statutory notice period is based on your length of service:
- At least one week’s notice if employed between one month and two years
- One week’s notice for each year if employed between two and twelve years
- A maximum of twelve weeks’ notice if employed for twelve years or more
If your employer cannot provide work during the notice period, they must normally provide payment in lieu of notice. If the company is insolvent and unable to pay, you may be able to claim this payment from the Insolvency Service.
Claiming statutory redundancy pay
If you have been continuously employed by your employer for at least two years and are made redundant due to the company closing down, you are likely entitled to statutory redundancy pay. This is calculated based on:
- Your age
- Your length of service (up to a maximum of 20 years)
- Your weekly gross pay (capped at the government-set maximum)
The formula is as follows:
- 0.5 week’s pay for each full year you were under 22
- 1 week’s pay for each full year you were aged 22 to 40
- 1.5 week’s pay for each full year you were aged 41 or older
Your employer should make this payment directly, but if the company is insolvent, you must apply through the Redundancy Payments Service.
Unpaid wages and other entitlements
In the event your employer is unable to pay you wages, holiday pay, or other contractual entitlements due to insolvency, you may be able to claim through the government’s National Insurance Fund. Claims can typically include:
- Up to eight weeks’ unpaid wages
- Up to six weeks’ unpaid holiday pay
- Statutory notice pay
- Unpaid redundancy pay
These claims are made through the Insolvency Service and must be supported by documentation from the insolvency practitioner managing the company’s closure. It's important to act quickly and ensure all forms are completed correctly to avoid delays.
Understanding the role of insolvency practitioners
If a company closes due to insolvency, an insolvency practitioner is usually appointed to oversee the winding-up process. This individual is responsible for communicating with employees, handling outstanding claims, and distributing company assets where possible. While they are not your employer, they do have a legal obligation to work in accordance with employment law and assist employees in making their claims via the appropriate channels.
In certain cases, the insolvency practitioner may retain some staff temporarily to assist in winding up operations or to sell part of the business. If you are retained in this way, all of your existing contractual rights remain intact until your employment is formally terminated or transferred.
Transfer of undertakings (TUPE) considerations
In some situations, one part of the business may be sold to another company even during insolvency. When this happens, employees may be transferred to the new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE is designed to protect your employment terms and continuity of service.
If TUPE applies, the new employer must take you on under your existing terms and conditions unless they can show a valid economic, technical or organisational reason for changing them. If the new employer refuses to employ you or attempts to force adverse changes, you may have grounds to claim unfair dismissal or redundancy.
Making a claim to the employment tribunal
If you feel your rights have not been respected following a company closure—for example, if you did not receive correct notice, proper consultation, or redundancy pay—you can make a claim to the employment tribunal. The tribunal can award compensation, determine whether a lawful dismissal occurred, and issue orders for payment. In most cases, you must submit your claim within three months less one day of the date your employment ended.
At Stephensons, we strongly recommend taking legal advice before initiating tribunal proceedings to ensure your case is well-prepared and properly submitted. Employment law is complex, especially in insolvency situations, and errors in the claims process can jeopardise your entitlements.
How Stephensons can help
At Stephensons, our team of employment lawyers are highly experienced in dealing with the legal issues that arise when companies close down. Whether your rights have been overlooked, or you simply need guidance on redundancy, notice pay or TUPE transfers, we can provide clear legal advice and representation. We understand how distressing this period can be and work diligently to assert your rights under the law while offering practical support.
What to do if your employer has closed suddenly
If your employer has closed unexpectedly or entered insolvency without communicating to employees, you should take the following steps:
- Try to make contact with any appointed insolvency practitioner immediately
- Gather and retain your contract, payslips and other employment records
- Check for any formal notice in the public register or Companies House
- Apply for redundancy and unpaid wage claims via the Insolvency Service
- Seek legal advice to determine any eligibility for further claims
Timing is critical in these situations, so acting promptly can ensure your rights are preserved and your claims are properly processed.
Final words
No matter the circumstances of a company’s closure, as an employee, you are not left without protection. UK employment law recognises the severe impact of business failure on employees and provides mechanisms for financial redress and legal recourse.
Stephensons has supported countless individuals through redundancy and business closures. Our goal is to ensure you understand and can enforce your rights from the moment you learn of your employer’s closure.
Contact us
For advice about your employee rights when a company closes down, call us today on 0161 696 6170 or fill in our enquiry form.
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